Elite CEOs Don't Need Earnings Guidance

Yahoo

16-05-2025

This column originally appeared in the WSJ's Markets A.M. newsletter. to receive it in your inbox every weekday.
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Analysts covering the world's largest retailer will have to sharpen their pencils now that it has joined several other companies in scrapping quarterly earnings guidance (it kept it for the full year). Leaving forecasters guessing is rarely seen as a good thing, but the blue chip got the benefit of the doubt from the market Thursday. When social-media company Snap did the same a few weeks ago, its shares fell more than 12%.
'Uncertainty' is practically a dirty word on Wall Street. After competitors scrapped their public forecasts, United Airlines instead took the unusual step last month of publishing two scenarios—one for a recession and another for an expansion.
That was bold, but imagine if its chief executive had been even bolder by telling the investing community that he would stop giving guidance altogether.
Unfortunately, that is a luxury mainly available to elite CEOs who are extremely secure in their jobs: Apple's Tim Cook, JPMorgan Chase's Jamie Dimon and, of course, Warren Buffett, who recently announced his impending retirement after six decades running Berkshire Hathaway.
It is a shame because avoiding the short-termism of Wall Street's expectations game might be a good thing for more companies. An earlier generation of successful bosses were even greater iconoclasts. Some had little use not only for guidance but even accounting profits.
'I used to go to shareholder meetings and someone would ask about earnings, and I'd say, 'I think you're in the wrong meeting,'' said John Malone, who made investors a fortune at his complicated web of cable and entertainment companies by focusing only on cash flow. He's credited with popularizing 'Ebitda,' which is a financial measure some companies now use to mask weak results.
Henry Singleton might be the greatest example of an executive who delivered with minimum regard for what Wall Street thought. Teledyne, the conglomerate he founded and ran for almost three decades, was a hot stock in the 1960s. It used that currency to become a serial acquirer of dozens of companies.
When Teledyne shares turned ice-cold in the 1970s, Singleton shocked analysts by selling off many of its pieces and repurchasing the vast majority of its stock before buybacks had become more common. Teledyne's annualized returns exceeded 20%, handily beating the market.
He was 'the smartest businessman I ever knew,' said the late Charlie Munger, who was vice chairman of Berkshire Hathaway.
There are some smart people in C-suites today, too, but incentives matter. To have them act like owners, much executive compensation is in stock options.
Disappointing Wall Street hammers their value and endangers a stream of future income if they get fired. By contrast, those old-school managers who focused on long-term returns acted like they owned the business, even when they often didn't own much of it at first.
If the CEO of a company you have invested in wants to stop giving guidance, he or she might be a keeper.
Write to Spencer Jakab at [e-mail]
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